£1600 to spend on debt - advice sought on which one!

ndf9876

Hi all,

I've had a bonus from work (lucky me!) of £1600 (after tax) and I'd really appreciate some advice on which debt(s) to spend it on, because my partner and I disagree on where I should spend it.

My current debts :

- Credit Card A : Balance £700, limit £1750, APR 34.9% (ouch)
- Credit Card B : Balance £1040, limit £1400, APR 19.9%
- Credit Card C : Balance £3800, limit £4000, APR 20.9%
- Car Finance - Balance £1600, repayments £200 per month

Now I could put all this into a snowball calculator, but the kicker is that we are aiming to apply for a mortgage in September this year. So, I want my credit file to look as squeaky clean as possible.

My thinking is to repay and close Card A, make an overpayment on the car finance of £600 to bring the term down by 3 months as it is due to end on 1st September, and use the rest of the money to pay Card B. The logic behind this is that, once the car finance is dead, I can use the £200 to hammer Card B down, then Card C. Plus it gets the car finance off my credit file sooner.

However, my partner feels that I should repay and close Card A, but use the remaining £900 to pay off Card B, which would then be closed the following month from my regular payment. She feels I should just leave the car finance to run its course, or try and repay it early if possible by one or two months (which is probably going to be achievable).

Is one or other of us right - or is there a "third way" as it were?

Thanks in advance for any help - of course happy to answer any questions on this

StokieBecks

Are you currently up to date on all payments? Definitely pay off A in full first and foremost as that is gaining the most interest (and then close the account)

Do you have anything put aside in an emergency fund? If not I would suggest starting one with some of this bonus so that if something cropped up you would not have to (hopefully) add it to a credit card.

If you clear A and use the rest for an emergency fund your monthly payment from A could then go towards the others

enthusiasticsaver

I would clear card A and put the rest to card C assuming the 20.9% interest is more than the car loan. Is the car finance front loaded with interest in which case there is no advantage in paying it off early? What rate are you paying on it?

I understand your logic but the rule in paying off debt is most expensive first.

ndf9876

Hi there! All payments up to date, no missed payments or anything like that. I'm overpaying the cards - A I overpay by £100 per month anyway, B and C I overpay less on.

I do have a small emergency fund but it's really, really modest. I mean a few hundreds of pounds, hardly the suggested 2 months wages! After reading a lot of advice I decided not to concentrate so much on saving due to my level of debt (which is not unmanageable but is over 10% of my gross annual salary, which I don't like).

ndf9876

Good question about the car finance - I will check this. It's certainly not at 20.9% that's for sure!

enthusiasticsaver

Normally I would say an emergency fund is essential. However if you are applying for a mortgage soon then getting your debt level down is more important. Make sure you close cards down as they are paid off.

abby1234519

If you had larger debts and more spreadout I'd have said just clear smallest ones, peace of mind. But the way they are currently structured you'll get most benefit from targeting ones that with highest interest

EssexHebridean

Check your credit file also to ensure that there aren't any other old, unused accounts still showing active on there, and that everything that is showing is an active reflection of your situation.

Good luck with your mortgage application.

ndf9876

Thanks for the advice all - I'm going to go with just repaying them in highest interest order / classic "snowball" method I think.

Glittery_2

I would pay off A straight away, put the rest on B, and then close B the next month.
Then you'd be able to throw your previous payments for A & B, plus the overpayments at C.

Then when you apply for your mortgage it looks better...1 credit card, and 1 car loan